HM Revenue and Customs Brief 27/09
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Issued 06 April 2009
Changes to the Tour Operators’ Margin Scheme
Introduction
This brief publicises changes to be made to the Tour
Operators’ Margin Scheme (TOMS) in order to comply fully with EU law.
The changes are to take effect from 1 January 2010.
Brief outline of the special scheme for travel agents
The special scheme for travel agents is a VAT accounting
scheme and simplification measure for tour operators and other travel
service providers based in the EU. Under the normal VAT rules, those
businesses buying and selling various elements of their travel packages
in different Member States would be liable to register and account for
VAT in each of the Member States concerned. The special scheme enables
tour operators to register in just the Member State in which they are
established, rather than in all Member States where they provide travel
services, thus significantly reducing their administrative burdens.
Under the scheme, the supply of a travel package is treated as a single
supply taxable at the standard rate of VAT, and operators account for
VAT on their profit margin in the Member State where they are
established, but are prevented from recovering input tax incurred on
scheme purchases.
Background
The European Commission has written to the UK raising
concerns about aspects of the UK’s operation of the TOMS and opining
that the UK arrangements in respect of these issues were not fully
compatible with the VAT Directive (2006/112 EC).
Following legal advice, the UK has accepted that aspects of the scheme
were not implemented properly and gave a commitment to amend the TOMS,
in order to comply with European law. These aspects concern:
 supplies to business customers for subsequent resale
 supplies to business customers for their own consumption
and supplies of educational school trips
 use of market values in respect of in house supplies
Separately, the European Commission commenced formal
infraction proceedings against eight Member States for their operation
of the TOMS. This did not include the UK.
Consultation
As the UK had no option but to make these changes, HMRC
consulted informally with industry representative bodies, the JVCC and
other professional bodies in the three month period ended 31 August
2008. The consultation, by necessity, was limited in scope and its
purpose was to ensure that the changes are introduced in as
businessfriendly a manner as possible, with an appropriate
transitional period. HMRC considered that 1 April 2009 would be a
reasonable implementation date for the changes but, as a result of
responses to the consultation, decided that 1 January 2010 would give
businesses more time to prepare for the changes. HMRC were unable to
announce these changes earlier as we had to seek some further
clarification from the European Commission.
Changes to be made
Supplies to business customers for resale (the 'opt in')
As a concession (set out in paragraph 3.2 of Notice 709/5),
HMRC has allowed tour operators who generally engage in normal holiday
sales to the travelling public but occasionally sell to other travel
businesses for onward resale the option of accounting for tax on the
latter in the special scheme. This was intended to ease the
administrative difficulties that operators might otherwise incur in
having to use the normal VAT rules to account for occasional supplies
of travel services to other businesses.
The UK has had to accept that the VAT Directive refers to
supplies made to the 'traveller'. The 'traveller' is the person who
consumes the travel, and so the scheme should not be used when the
travel service is sold to a person other than the traveller, such as
when supplies are made to business customers for resale. Those tour
operators affected will have to change their practices from 1 January
2010 to account for the VAT due under the normal VAT rules. In some
cases, this may give rise to a requirement to register for VAT in other
Member States.
Supplies to businesses for their own consumption and the
provision of school trips (‘the opt out’)
The UK includes travel services which are supplied to other
businesses for their own consumption in the special scheme.
However, tour operators have been allowed to opt out of the
scheme in respect of such supplies. This has meant that business
customers have been able to recover VAT charged on those supplies
subject to the normal rules. HMRC has also treated the provision of
school trips as a non business activity for VAT purposes and allowed
them also to be excluded from the special scheme, enabling local
authorities to recover the VAT charged in relation to Local Education
Authority schools.
The Commission has clarified that the term 'traveller' should
not be restricted to the physical person who consumes a travel package,
but also covers legal persons that consume the travel package, for
example, businesses which pay for employee travel, and the supply of
school trips to local authorities. Accordingly, Article 3(3) of the
Value Added Tax (Tour Operators) Order 1987 will be revoked with effect
from 1 January 2010. This means that from that date businesses
receiving supplies of travel services from tour operators will no
longer be able to recover VAT on such supplies. Those LEA schools that
previously took advantage of the concession set out at paragraph 3.4 of
Public Notice 709/5 will no longer be able to recover VAT on UK school
trips purchased from tour operators. There will be no change for trips
organised directly by a school, such as day trips involving coach
transport to a zoo or museum. Non LEA schools (including Grant
Maintained and Foundation schools) and youth clubs or colleges were not
entitled to claim the concession, and are unaffected by this change.
Market values
The current UK TOMS calculation (as detailed in Notice 709/5)
requires the margin to be apportioned with reference to the actual
costs incurred by the operator in putting together the package.
However, the European Court of Justice (ECJ) decision in the case of
MyTravel (C291/03) ruled that, where it is possible to establish an
appropriate market value for that part of the selling price which
corresponds to the in house supplies, this should be used to apportion
the selling price between in house and bought in components. The margin
can then be calculated on each of these elements, and the tax
computation completed accordingly.
The Court also said, however, that the cost based method
could be used where this accurately reflected the actual structure of
the package. The ECJ did not elaborate on what it meant by this term
but HMRC consider that, as the cost based method assumes a fixed
percentage mark up across all elements of the package, the tour
operator’s package would also have to be on a fixed mark up basis to
meet this criterion. If it is not possible to determine a market value,
tour operators can continue to use the current cost based method.
The ECJ left it to the national tax authorities and, where
appropriate, the Courts, to assess whether it is possible to identify
the part of the package corresponding to the in house services on the
basis of their market value and, in this context, to determine the most
appropriate market. Whilst the concept of market values is complex, and
it is not always easy to determine exactly what a market value is in
this context, drawing from the various Court findings, it would appear
that certain parameters should be taken into account when deciding
whether it is possible to establish such a value:
 The market value (selling price) must be within the
context of the tour operator's business, eg a tour operator could not
use the price of a scheduled airline flight in determining a market
value of the flight forming part of a package holiday.
 The market value must be on a likeforlike basis, ie it
should be determined on the basis of the price of similar services
supplied by the taxable person, and not forming part of a package. If
the taxable person does not provide similar services, it may be
possible to use the price of services provided by other taxable
persons, provided that they can be shown to be comparable.
 Across the board averages may be used if correctly
weighted and reviewed regularly.
It is clear from this that market values need to be
considered on a case by case basis. Where such values are to be used,
they will simply slot into the current calculation method at the
appropriate point. The tertiary legislation setting out the market
value calculation will be included in the revised Public Notice 709/5
in due course. In the meantime, it is attached in draft as an annex to
this brief, together with some examples of calculations (at the 17.5
per cent rate of VAT) using market values. Although the tertiary
legislation is not yet in place, in the light of the European Court
decision, businesses may of course choose to use market values now
where appropriate.
TOMS Calculation Example 1 All in house supplies calculated
by market value
Package price £1000
Being the price paid for the full package by the holidaymaker
=========================
Inhouse MV SR £300
Being the market value of STD rate inhouse supplied included in the
package.
=========================
Boughtin SR cost £75
Boughtin ZR cost £250
Being the cost of the boughtin supplies that form part of the package
Using the matrix
Post the £1000 to box M1 and the £300 to box M2 of the market
value matrix.
This works through to £700 in Box M5 which is then posted to
Box 1 of the main margin scheme calculation.
The £75 is then posted to Box 2 and the £250 posted to Box 3.
The rest of the boxes can then be calculated based on the
information (above) that has now been posted.
Market Value calculation (Annual adjustment)
THIS SECTION HAS THE FORCE OF LAW and is referred to in
paragraphs xx
This section only applies to
packages or parts of packages being apportioned by the market value of
the inhouse element of the package. On completion of all the steps
M1M5 you must then follow the steps in the costbased calculation in
section 9, taking forward the figures from this section as instructed 
Step 
Boxes requiring ‘raw data’ entry are in white, boxes
which ‘process’ that data are in grey. 


Calculate the value of sales of margin scheme packages 

M1 
Total the VATinclusive selling prices of all your
designated travel services and margin scheme packages supplied during
the financial year including any that are not ‘market value’ packages. 
1000 

Working out the market value 

M2 
Total the VAT inclusive market value of the
standardrated inhouse supplies at M1: carry forward
this figure to step 21 of section 9 
300 
M3 
Total the VAT inclusive market value of the zero rated
and outside the scope inhouse travel services at M1: carry
forward this figure to step 26 of section 9 
 
M4 
Total the VAT inclusive market value of the inhouse
supplies at step M2 + step M3 
300 

Working out selling value of designated
travel services and nonmarket value inhouse supplies. 

M5 
Deduct the total at step M4 from the total at step M1: carry
forward this figure to step 1 of section 9 
700 
Costbased calculation (Annual adjustment)
THIS SECTION HAS THE FORCE OF LAW and is referred to in
paragraphs.
This section applies to packages
being apportioned by reference to the costs of the inhouse element of
the package, and imports the figures calculated by the market value
method in section 8, where that method is used for all or some of the
travel packages. Do not include values already entered in section 8
unless explicitly stated 
Step 
Boxes requiring ‘raw data’ entry are in white, boxes
which ‘process’ that data are in grey. 


Working out the total sales of margin
scheme packages 

1 
Bring forward the total calculated at step M5 of
section 8. If Section 8 is not used then enter the VATinclusive
selling prices of your designated travel services and margin scheme
packages supplied during the financial year. 
700 

Working out the purchase prices of margin
scheme supplies 

2 
Total the VATinclusive purchase prices of the
standardrated designated travel services included in the total at step
1. 
75 
3 
Total the VATinclusive purchase prices of the non
standardrated designated travel services (supplies enjoyed outside the
EU) included in the total at step 1. 
250 

Working out the direct costs of inhouse
supplies. Steps 4 to 7 can be ignored where a market value is applied
to all inhouse supplies under section 8 

4 
Total the VATexclusive direct costs to you of the
standardrated inhouse supplies included in step 1. Add a percentage
of that amount equivalent to the standard rate of VAT. 
 
5 
Total the VATexclusive direct costs to you of the
zerorated inhouse supplies included in step 1. 
 
6 
Total the VATinclusive direct costs to you of the
exempt inhouse supplies included in step 1. Deduct any input tax that
you are entitled to recover on these costs. 
 
7 
Total the direct costs to you of the inhouse supplies
included in step 1 that are supplied outside the UK, exclusive of any
VAT incurred on these costs that you are entitled to recover. Add to
the total an uplift equivalent to the percentage VAT rate applicable to
such supplies if you have accounted for VAT on these supplies to the
VAT authorities in another member state. 
 

Working out the 'costs' of agency supplies 

8 
Total the VATinclusive amounts paid by you to your
principals in respect of the agency supplies included in step 1 for
which the consideration you receive is standardrated 
 
9 
Total the VATinclusive amounts paid by you to your
principals in respect of the agency supplies included in step 1 for
which the consideration you receive is not standardrated 
 

Working out the total margin 

10 
Add the totals of costs at steps 2 to 9 inclusive. 
325 
11 
Calculate the total margin for all the supplies
included in step 1 by deducting the total at step 10 from the total at
step 1. 
375 

Apportioning the margin 

12 
Calculate the margin for the standardrated designated
travel services by applying the following formula:
total at step 2 x total
at step 11
total at step10

86.54 
13 
Calculate the margin for the zerorated designated
travel services by applying the following formula:
total at step 3 x total
at step 11
total at step 10

288.46 

Steps 14 to 17 can be ignored where a
market value is applied to all inhouse supplies under section 8 

14

Calculate the margin for the standardrated inhouse
supplies by applying the following formula:
total at step 4 x total
at step 11
total at step 10

 
15 
Calculate the margin for the zerorated inhouse
supplies by applying the following formula:
total at step 5 x total
at step 11
total at step10

 
16 
Calculate the margin for the exempt inhouse supplies by
applying the following formula:
total at step 6 x total
at step11
total at step 10

 
17 
Calculate the margin for the inhouse supplies made
outside the UK by applying the following formula:
total at step 7 x total
at step 11
total at step10

 
18 
Calculate the consideration for the standardrated
agency supplies by applying the following formula:
total at step 8 x total
at step 11
total at step 10


19 
Calculate the consideration for the nonstandardrated
agency supplies by applying the following formula:
total at step 9 x total
at step 11
total at step 10



Working out your output tax 

20 
Calculate the output VAT due on the designated travel
services by applying the following formula:
total at step 12 x the
VAT fraction

12.89 
21 
Calculate the output VAT due on the standardrated
inhouse supplies by applying the following formula:
(total at step 4 + total at step 14 + total calculated
at step M2 of section 8) x the VAT
fraction.

44.68 
22 
Calculate the output VAT due on the standardrated
agency supplies by applying the following formula:
total at step 18 x the
VAT fraction

 

Working out sales values 

23 
Calculate the VATexclusive value of the standardrated
designated travel services by deducting the total at step 20 from the
total at step 12. 
73.65 
24 
Note the value of the zerorated designated travel
services at step 13 
288.46 
25 
Calculate the VATexclusive value of your standardrated
inhouse supplies by applying the following formula:
(total at step 4 + total at step 14 + total calculated
at step M2 of section 8)  total at step 21

255.32 
26 
Calculate the value of the zero rated supplies made
within the scheme by applying the following formula:
(total at step 5 + total at step 15 + total calculated
at step M3 of section 8)

 
27 
Calculate the value of your exempt inhouse supplies
made by applying the following formula:
total at step 6 + total at step 16

 
28 
Calculate the value of your inhouse supplies which are
supplied outside the UK by applying the following formula:
total at step 7 + total at step 17

 
29 
Calculate the total VAT exclusive value of the supplies:
Total of steps 23 to 28. Include this total in box 6 of
your VAT return.

617.43 

Working out the annual adjustment 

30 
Calculate the total output VAT due on your designated
travel services and margin scheme packages by adding the totals at
steps 20 to 22 inclusive. 
57.57 
31 
Total the provisional output VAT which has been
accounted for during the financial year on the supplies included in the
total at step 1. 
 
32 
Deduct the total at step 31 from the total at step 30.
Include the resulting total in box 1 of your VAT return, either as a
payable amount where the amount is positive or as a deductible amount
where the amount is negative. 
57.57 
TOMS Calculation Example 2 Mixture of market value and cost
based in house supplies
Package price £10,000
Being the price paid for the full packages by the holidaymaker
=========================
Inhouse MV SR £3,500
Inhouse MV ZR £1,000
Being the market value of inhouse supplies included in the packages.
=========================
Boughtin SR cost £1,700
Boughtin ZR cost £0
Being the cost of the boughtin supplies that form part of the packages
=========================
Inhouse (nonMV) SR £100 + VAT =£117.50
Inhouse (nonMV) ZR £700
Inhouse (nonMV) Os £220
=========================
Agency SR £1000
Agency ZR £100
=========================
Using the matrix
Post the £10000 to box M1, the £3500 to box M2 and £1000 to
box M3 of the market value matrix.
This works through to £5500 in Box M5 which is then posted to
Box 1 of the main margin scheme calculation.
The £1700 is then posted to Box 2,
£117.50 to Box 4,
£700 to Box 5,
£220 to Box 7,
£1000 to Box 8,
£100 to Box 9
The rest of the boxes can then be calculated based on the
information (above) that has now been posted.
Market Value calculation (Annual adjustment)
THIS SECTION HAS THE FORCE OF LAW and is referred to in
paragraphs xx
This section only applies to
packages or parts of packages being apportioned by the market value of
the inhouse element of the package. On completion of all the steps
M1M5 you must then follow the steps in the costbased calculation in
section 9, taking forward the figures from this section as instructed 
Step 
Boxes requiring ‘raw data’ entry are in white, boxes
which ‘process’ that data are in grey. 


Calculate the value of sales of margin
scheme packages 

M1 
Total the VATinclusive selling prices of all your
designated travel services and margin scheme packages supplied during
the financial year including any that are not ‘market value’ packages. 
10000 

Working out the market value 

M2 
Total the VAT inclusive market value of the
standardrated inhouse supplies at M1: carry forward
this figure to step 21 of section 9 
3500 
M3 
Total the VAT inclusive market value of the zero rated
and outside the scope inhouse travel services at M1: carry
forward this figure to step 26 of section 9 
1000 
M4 
Total the VAT inclusive market value of the inhouse
supplies at step M2 + step M3 
4500 

Working out selling value of designated
travel services and nonmarket value inhouse supplies. 

M5 
Deduct the total at step M4 from the total at step M1: carry
forward this figure to step 1 of section 9 
5500 
Costbased calculation (Annual adjustment)
THIS SECTION HAS THE FORCE OF LAW and is referred to in
paragraphs.
This section applies to packages
being apportioned by reference to the costs of the inhouse element of
the package, and imports the figures calculated by the market value
method in section 8, where that method is used for all or some of the
travel packages. Do not include values already entered in section 8
unless explicitly stated 
Step 
Boxes requiring ‘raw data’ entry are in white, boxes
which ‘process’ that data are in grey. 


Working out the total sales of margin
scheme packages 

1 
Bring forward the total calculated at step M5 of
section 8. If Section 8 is not used then enter the VATinclusive
selling prices of your designated travel services and margin scheme
packages supplied during the financial year. 
5500 

Working out the purchase prices of margin
scheme supplies 

2 
Total the VATinclusive purchase prices of the
standardrated designated travel services included in the total at step
1. 
1700 
3 
Total the VATinclusive purchase prices of the non
standardrated designated travel services (supplies enjoyed outside the
EU) included in the total at step 1. 
 

Working out the direct costs of inhouse
supplies. Steps 4 to 7 can be ignored where a market value is applied
to all inhouse supplies under section 8 

4 
Total the VATexclusive direct costs to you of the
standardrated inhouse supplies included in step 1. Add a percentage
of that amount equivalent to the standard rate of VAT. 
117.50 
5 
Total the VATexclusive direct costs to you of the
zerorated inhouse supplies included in step 1. 
700 
6 
Total the VATinclusive direct costs to you of the
exempt inhouse supplies included in step 1. Deduct any input tax that
you are entitled to recover on these costs. 
 
7 
Total the direct costs to you of the inhouse supplies
included in step 1 that are supplied outside the UK, exclusive of any
VAT incurred on these costs that you are entitled to recover. Add to
the total an uplift equivalent to the percentage VAT rate applicable to
such supplies if you have accounted for VAT on these supplies to the
VAT authorities in another member state. 
220 

Working out the 'costs' of agency supplies 

8 
Total the VATinclusive amounts paid by you to your
principals in respect of the agency supplies included in step 1 for
which the consideration you receive is standardrated 
1000 
9 
Total the VATinclusive amounts paid by you to your
principals in respect of the agency supplies included in step 1 for
which the consideration you receive is not standardrated 
100 

Working out the total margin 

10 
Add the totals of costs at steps 2 to 9 inclusive. 
3837.50 
11 
Calculate the total margin for all the supplies
included in step 1 by deducting the total at step 10 from the total at
step 1. 
1662.50 

Apportioning the margin 

12 
Calculate the margin for the standardrated designated
travel services by applying the following formula:
total at step 2 x total
at step 11
total at step10

736.48 
13 
Calculate the margin for the zerorated designated
travel services by applying the following formula:
total at step 3 x total
at step 11
total at step 10

 

Steps 14 to 17 can be ignored where a
market value is applied to all inhouse supplies under section 8 

14

Calculate the margin for the standardrated inhouse
supplies by applying the following formula:
total at step 4 x total
at step 11
total at step 10

50.90 
15 
Calculate the margin for the zerorated inhouse
supplies by applying the following formula:
total at step 5 x total
at step 11
total at step10

303.26 
16 
Calculate the margin for the exempt inhouse supplies by
applying the following formula:
total at step 6 x total
at step11
total at step 10

 
17 
Calculate the margin for the inhouse supplies made
outside the UK by applying the following formula:
total at step 7 x total
at step 11
total at step10

95.31 
18 
Calculate the consideration for the standardrated
agency supplies by applying the following formula:
total at step 8 x total
at step 11
total at step 10

433.22 
19 
Calculate the consideration for the nonstandardrated
agency supplies by applying the following formula:
total at step 9 x total
at step 11
total at step 10

43.32 

Working out your output tax 

20 
Calculate the output VAT due on the designated travel
services by applying the following formula:
total at step 12 x the
VAT fraction

109.69 
21 
Calculate the output VAT due on the standardrated
inhouse supplies by applying the following formula:
(total at step 4 + total at step 14 + total calculated
at step M2 of section 8) x the VAT
fraction.

546.36 
22 
Calculate the output VAT due on the standardrated
agency supplies by applying the following formula:
total at step 18 x the
VAT fraction

64.52 

Working out sales values 

23 
Calculate the VATexclusive value of the standardrated
designated travel services by deducting the total at step 20 from the
total at step 12. 
626.79 
24 
Note the value of the zerorated designated travel
services at step 13 
 
25 
Calculate the VATexclusive value of your standardrated
inhouse supplies by applying the following formula:
(total at step 4 + total at step 14 + total calculated
at step M2 of section 8)  total at step 21

3122.05 
26 
Calculate the value of the zero rated supplies made
within the scheme by applying the following formula:
(total at step 5 + total at step 15 + total calculated
at step M3 of section 8)

2003.26 
27 
Calculate the value of your exempt inhouse supplies
made by applying the following formula:
total at step 6 + total at step 16

 
28 
Calculate the value of your inhouse supplies which are
supplied outside the UK by applying the following formula:
total at step 7 + total at step 17

316.31 
29 
Calculate the total VAT exclusive value of the supplies:
Total of steps 23 to 28. Include this total in box 6 of
your VAT return.

6067.41 

Working out the annual adjustment 

30 
Calculate the total output VAT due on your designated
travel services and margin scheme packages by adding the totals at
steps 20 to 22 inclusive. 
720.57 
31 
Total the provisional output VAT which has been
accounted for during the financial year on the supplies included in the
total at step 1. 
 
32 
Deduct the total at step 31 from the total at step 30.
Include the resulting total in box 1 of your VAT return, either as a
payable amount where the amount is positive or as a deductible amount
where the amount is negative. 
720.57 
TOMS Calculation Example 3 Provisional calculation
For the purpose of this exercise assume the year just gone is
the summation of example 1 and example 2
=========================
Value of box 4 £117.50
Value of box 12 £823.02
Value of box 14 £50.90
Value of box 18 £433.22
Value of box M2 £3800
Total £5224.64
=========================
Value of box (M1) £11,000
=========================
Value of supplies this ¼ £3000
=========================
Using the matrix
Post the £5224.64 to box 1
Calculate the provisional percentage (47.49%) in box 2.
Post £3000 to box 3
Multiply £3000 x 47.5% to calculate provisional Std Rate
supplies
Extract the VAT from that figure (7/47 in this example)
Accounting for VAT on the provisional value of designated
travel services and margin scheme packages
THIS SECTION HAS THE FORCE OF LAW
and is referred to in paragraphs 
Step 



Working out the provisional percentage 

1 
Calculate the VATinclusive amount of your
standardrated supplies of designated travel services and margin scheme
packages for the preceding financial year by adding the totals from
steps 4, 12, 14 and 18 of section 9, together with the total M2 in the
market value calculation in section 8. 
5224.64 
2 
Calculate the VATinclusive standardrated percentage of
the total selling price of all your designated travel services and
margin scheme packages for the preceding tax year by applying them one
of following formulae:
If you have used a market value to value inhouse
supplies
total at step 1 of this section x
100
total at step M1 of section 8
If you have not used a market value to value inhouse
supplies
total at step 1 of this section x
100
total at step 1 of section 9

47.5% 

Working out the VAT return figures 

3 
Total the VATinclusive selling prices of the
designated travel services and margin scheme packages supplied during
the prescribed accounting period. 
3000 
4 
Calculate the provisional VATinclusive amount of your
standardrated supplies of designated travel services and margin scheme
packages made during the prescribed accounting period by applying the
following formula:
total at step 3 x
percentage at step 2

1424 
5 
Calculate the provisional amount of output VAT due for
the prescribed accounting period by applying the following formula:
total at step 4 x the VAT fraction 
212.23 
Tertiary Law
THIS SECTION HAS THE FORCE OF LAW and is referred to in
paragraphs
TL1
1. This section shall come into effect on 1 January 1998.
2. Where a tour operator, in the same financial year,
supplies:
 designated travel services or margin scheme packages which
are to be enjoyed wholly outside the European Community
 designated travel services or margin scheme packages which
are to be enjoyed wholly or partly within the European Community
the Commissioners of Customs and Excise may, on being given
written notification by the tour operator no later than the due date
for rendering his first VAT return for the financial year in which the
supplies are to be made, allow the supplies under subparagraph (a) to
be valued separately from those under subparagraph (b).
3. Where a tour operator, under paragraph 2 above, has
separately valued supplies of designated travel services or margin
scheme packages enjoyed wholly outside the European Community from
supplies of designated travel services or margin scheme packages
enjoyed wholly or partly within the European Community, the
Commissioners of Customs and Excise may, on being given written
notification by the tour operator no later than the due date for
rendering his first VAT return for any subsequent financial year, allow
supplies to be made in such subsequent financial year to be valued
using the method specified at sections 8 and 9 of this Notice.
TL2
1. This section shall come into effect on 1 January 1998.
2. Where:
 a supply of goods or services is acquired by a tour
operator for the purpose of supplying a designated travel service
 the value of the supply to the tour operator is expressed
in a currency other than sterling
the tour operator must convert such value into sterling for
the purposes of steps 2 and 3 of section 9 of this Notice or step 2 of
section 11 of this Notice.
3. For the purposes of paragraph 2 above, the tour operator
must use one of the following:
 the rate of exchange published in the Financial Times
using the Federation of Tour Operators’ base rate current at the time
such supplies were costed by the person from whom the tour operator has
acquired the goods or services
 the commercial rate of exchange current at the time that
the supplies in his brochure were costed
 the rate published in the Financial Times on the date that
the tour operator pays for the supplies
 the rate of exchange which was applicable to the purchase
by the tour operator of the foreign currency which he used to pay for
those supplies
 the period rate of exchange published by Customs and
Excise for customs purposes in force at the time the tour operator pays
for those supplies
4. Where the methods at paragraph 3(a) or (b) above are used,
the tour operator must publish the rate in any brochure or leaflet in
which these supplies are held out for sale.
5. The Commissioners of Customs and Excise may, on being
given written notification by a tour operator no later than the due
date for rendering his first return of his financial year, allow a
different method to be used in that financial year from that used in
the previous financial year.
TL3
1. This section shall come into effect on 1st January 2010.
2. Where possible the value of any inhouse supplies shall be
valued by reference to their market value and the value of designated
travel services and agency supplies shall be determined by applying the
formula set out in section 8 of this Notice (hereinafter referred to as
the 'market value calculation'), unless during the relevant period all
such supplies are liable to VAT at the same rate, in which case the
value shall be determined by applying the formula set out in section 11
of this Notice (hereinafter referred to as 'the simplified
calculation').
3. On completing the steps in the market value calculation the
figures produced must be entered into the costbased calculation as
detailed in section 9 together with any packages, or parts of packages,
for which the market value calculation is not being done.
4. Where the costbased calculation in TL4 accurately
reflects the structure of the package holidays you may opt to use the
costbased calculation for all packages regardless of whether a market
value can be established for some or all of the packages and section 8
calculations may be ignored.
5. Where the market value calculation has been used a tour
operator may only cease to use that method where it becomes impossible
to continue to determine a market value of the supply in question or
where the costbased calculation accurately reflects the structure of
the package.
TL4
1. Subject to Section TL1 and TL3 of section 13 of this
Notice, the value of designated travel services, inhouse supplies and
agency supplies shall be determined by applying the formula set out in
section 9 of this Notice (hereinafter referred to as the 'costbased
calculation'), unless during the relevant period all such supplies are
liable to VAT at the same rate, in which case the value shall be
determined by applying the formula set out in section 11 of this Notice
(hereinafter referred to as 'the simplified calculation').
2. The provisional value of designated travel services,
inhouse supplies and agency supplies shall be determined in accordance
with the formula set out in:
 section 10 of this Notice, where the costbased
calculation applies
 section 12 of this Notice, where the simplified
calculation applies
3. A tour operator shall be required to account for VAT on
the provisional value of his supplies of designated travel services,
inhouse supplies and agency supplies on the VAT return for the
prescribed accounting period in which the supplies are made.
4. The difference between the amount of VAT due on the value
of designated travel services, inhouse supplies and agency supplies
supplied during a tour operator’s financial year, and the amount of VAT
paid on the provisional value of those supplies, shall be adjusted by
the tour operator on the VAT return for the first prescribed accounting
period ending after the end of the financial year during which the
supplies were made.
TL5
1. For the purpose of sections 8 to 13 of this Notice:
(a) 'inhouse supply' means a supply by a tour operator which
is neither a designated travel service nor an agency supply;
(b) 'market value' means the selling price of the inhouse element of a
'margin scheme package' were it to be sold independent of the package
in an armslength transaction to an unconnected person.
(c) 'cost based method' means the calculation in section 9 of this
Notice.
(d) 'agency supply' means a supply arranged by a tour operator between
two other persons, in the capacity of an agent or intermediary for
either person, for which the tour operator receives a consideration,
the value of which is not readily identifiable;
(e) 'margin scheme package' means a single transaction which includes
one or more designated travel services;
(f) 'financial year' means a period corresponding to a tour operator’s
financial year for accounting purposes;
(g) 'direct costs' means costs which are directly and specifically
attributable to the provision of inhouse supplies, to the extent that
they are so attributable;
(h) 'VAT fraction' has the same meaning as in Notice 700 The VAT
Guide«LINK».
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Article Published/Sorted/Amended on Scopulus 20090410 14:40:57 in Tax Articles